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Tax Tips for a Turbulent Time
As 2020 comes to a close, we wanted to talk about everyone’s favorite topic: taxes! Okay, maybe not everyone’s favorite, but there are several steps you can take now (and throughout the year) to make the process a little easier in 2021.
1) Gather Your Tax Records
You may want to begin gathering and organizing your records. Having all your necessary tax documents in one place will make the filing process smoother and prevent possible mistakes. Keep alert for relevant tax documents as they arrive from employers, banks, etc., and develop a system for keeping these documents handy and safe. In your tax records, you are going to want to include any W-2 forms from employers, 1099 forms from banks and other payers, and other income documents and records of virtual currency transactions.
If you received an Economic Impact Payment (EIP) this year, make sure you keep your Notice 1444 with your other tax records. This notice should have been mailed to your last known address by the IRS within 15 days of you receiving your EIP. This document may be especially relevant if you believe your EIP payout amount was wrong.
Related to the stimulus payments, you may be eligible for a Recovery Rebate Credit if you met the requirements in 2020 for an EIP but did not receive one or got less than the full amount. You can learn more about your eligibility for the Recovery Rebate Credit here: https://www.irs.gov/coronavirus/economic-impact-payment-information-center.
If 2020 was a year of many changes for you, remember to notify the IRS of address changes and the Social Security Administration of a legal name change. Keeping your information up-to-date will help prevent delays down the line.
2) Use the Tax Withholding Estimator
The IRS offers a tool on its website for estimating the appropriate amount of federal income tax that should be withheld from your paycheck. Withholding the correct amount now can prevent surprise tax bills or penalties later after you file your return. You may want to use the estimator to determine whether you should update your W-4 form with your employer.
3) Check the Status of Your Individual Tax Identification Number (ITIN)
Some federal taxpayers will have an Individual Taxpayer Identification Number (ITIN), which is a tax processing number issued by the IRS to certain individuals who do not have a social security number and are not eligible to obtain one. If you have an ITIN, the IRS recommends checking now to make sure that it has not expired. You can learn more about which ITINs are expired/expiring here: https://www.irs.gov/individuals/individual-taxpayer-identification-number.
You will want to file a renewal application as soon as possible if your ITIN is expired/expiring this year. This is an important step because if you file a tax return with an expired ITIN, you may experience delays in any refund you might be owed. You can download a copy of the Form W-7 here: https://www.irs.gov/forms-pubs/about-form-w-7.
We hope these simple steps may make the tax filing season a little less stressful in 2021.
This blog post is based on information shared by the IRS here: https://www.irs.gov/individuals/steps-to-take-now-to-get-a-jump-on-next-years-taxes.
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